Graffoff Dec 2012

Revenue/day = 1,600,000/365 = 4383.56 Receivables = 260,000 Collection period (current) = 260,000/4383.56 = 59.31 Reducing this to 40 days will raise 4383.56 x (59.31 - 30) = 128,482 (ie 128,500 when rounded) Purchases/day = 1,375,000/365 = 3767.12 (assuming inventory is level) Payables = 75,000 Payables days = 75,000/3767.12 = 19.91 If increased to 40 days, additional cash would be retained amounting to 3767.12 x (40 - 19.91) = 75,681 (which I assume is rounded to 75,500) If increased to 30 days 3767.12 x (30 - 19.91) = 38,000